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Rachel Reeves has set out plans to target a free trade deal with Donald Trump after saying she is “not satisfied” with the UK’s flatlining economy.
As official figures showed economic growth stalling under Labour, the chancellor said she wanted to boost trade with the US and “looks forward to working with president-elect Trump”.
“There’s more than £300bn of trade flows between the UK and the United States every year, and we want to see that trade increase, whether that’s through a free trade agreement or through further improvements in our trade and investment flows,” Ms Reeves told ITV.
During the election, Mr Trump unveiled plans to impose 20 per cent tariffs on all imports to the US, with the levy rising to 60 per cent for Chinese imports.
The move would pile pressure on UK goods prices and risk driving up inflation. Ms Reeves refused to say whether the UK would retaliate if Mr Trump went ahead with the tariff plans, but sent a warning to the incoming Republican. “We’re not in favor of tariffs, they push up prices for consumers in Britain and the United States… tariffs push push up prices, and we’ll make the case for free and open trade,” she added.
But, amid anger at the chancellor over her decision to impose inheritance tax on farmers in the Budget, she stressed that she would protect British farming. “We’re not going to allow British farmers to be undercut by different rules and regulations,” Ms Reeves said. A key sticking point in free trade talks between the UK and US is the issue of chlorinated chicken and hormone-fed beef, both of which are practices associated with factory farms in America.
It came after official figures showed the economy flatlining in the months after Labour came to power.
The chancellor promised that “economic growth is at the heart of everything I am seeking to achieve” after the Office for National Statistics (ONS) said Britain’s economy grew by just 0.1 per cent between July and September.
“I am not satisfied with these numbers,” Ms Reeves said.
The UK suffered a slowdown in GDP growth from 0.5 per cent the previous quarter, the Office for National Statistics (ONS) said. And, in a further blow to Ms Reeves, real GDP per person fell by 0.1 per cent, the ONS said.
The figures were worse than economist forecasts of 0.2 per cent GDP growth and came after Labour unveiled a rise in government spending and business taxes in last month’s Budget.
Shadow chancellor Mel Stride said Labour had inherited the fastest growing economy in the G7 group of advanced economies, but choices made by Ms Reeves had slowed that down significantly.
He said: “Official forecasts show because of the chancellor’s choices these figures are not likely to improve. Labour made a lot of promises about growth in the election, they need to act now before their broken promises lead to yet more taxes rises.”
The economy is estimated to have contracted by 0.1 per cent in September 2024, after growth in the months before that, largely because of declines in factory output and IT services.
Ms Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.
“At my Budget, I took the difficult choices to fix the foundations and stabilise our public finances.”
The figures came the morning after Ms Reeves sought to win back the trust of the City, telling business leaders that restrictions imposed after the 2008 banking crash “went too far”.
In a speech at Mansion House on Thursday evening, Ms Reeves announced plans to row back on regulation in a bid to jumpstart an economic turnaround.
She followed the governor of the Bank of England, who said Britain must rebuild relations with Brussels and warned of the economic consequences of Brexit.
Amid fears of a global trade war in Mr Trump’s second term, Andrew Bailey said he had to “point out the consequences” of Brexit, adding that it has “weighed on the level of potential supply”.
“It underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people,” Mr Bailey said.
He added: “The picture is now clouded by the impact of geopolitical shocks and the broader fragmentation of the world economy.”
The ONS figures showed the services sector, which makes up the bulk of the economy, slowing to no growth in September, growing overall by just 0.1 per cent during the period.
Factory output fell 0.2 per cent over the three-month stint driven by a larger decline in the month of September, while the construction sector grew 0.8 per cent over the quarter.
Liz McKeown, ONS director of economic statistics, said: “The economy grew a little in the latest quarter overall as the recent slowdown in growth continued.
“Retail and new construction work both performed well, partially offset by falls in telecommunications and wholesale. Generally, growth was subdued across most industries in the latest quarter.
“In September the economy shrank a little. Services showed no growth with a notable increase in car sales offset by a slow month for IT companies.
“Production fell overall, driven by manufacturing, though there was an increase in oil and gas extraction.”
Ben Jones, lead economist at the Confederation of British Industry, said uncertainty in the run-up to the autumn Budget “probably played a big part”, after firms reported a slowdown in making spending decisions.
“Hopefully this will prove to be a blip. We still expect the economy to return to a path of modest growth in the year ahead. But downside risks to the outlook have increased.”
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, added that the figures suggest the economy “went off the boil even before the Budget”, citing weakness in business in consumer confidence.
He said: “Following a ‘gangbusters’ first half of the year, the third quarter outturn paints a more realistic picture of the UK’s underlying growth trajectory given longstanding challenges over poor productivity and persistent supply side constraints.
“Economic growth in the final quarter of this year is likely to be similarly modest with looming tax rises and growing global uncertainty likely to spark a renewed restraint to spend and invest, despite lower interest rates.”
The figures follow Bank of England policymakers’ decision to cut interest rates by a quarter point to 4.75 per cent in early November, with another rates decision coming in December.
Mr Thiru continued: “In spite of these downbeat figures, a December policy loosening looks improbable as rate setters will likely be concerned enough over inflation risks from the Budget and growing global headwinds to resist signing off back-to-back interest rate cuts.”
Luke Bartholomew, deputy chief economist at investment giant Abrdn, said: “With activity growth in September being reported as particularly weak, it is plausible that some of slowing is the result of elevated uncertainty at that time, as firms and households speculated about possible tax changes ahead of the Budget.
“That said, it is also possible that this just represents normal monthly volatility rather than anything more fundamental.
“In any regard, the contents of the Budget ended up somewhat boosting the growth and inflation picture for 2025, and so in that context these data will probably do little to change the thinking at the Bank of England.”
